Devin Harlick is at a loss when it comes to figuring out how much canola to plant this spring.
The Canola Council of Canada’s announcement that China is no longer taking Canadian canola and that there is no immediate resolution on the horizon has him “very concerned.”
“I’ve been second guessing what we have booked for our canola,” said the grower from Eastend, Sask.
“It’s a very unfortunate situation that we’re being penalized as producers for something that we had nothing to do with.”
There is plenty of speculation that China’s canola seed ban is tied to Canada’s detention of Huawei executive Meng Wanzhou.
Harlick and his father-in-law were originally planning to seed 5,000 acres of canola. But if it is still dry in his region come seeding he will cut that by 10 to 20 percent. That is a common refrain among farmers in his area.
“It’s so stressful because it seems like every commodity that we look at growing there’s something (wrong) with it,” he said.
China doesn’t want his canola, India doesn’t want his peas and Italy doesn’t want his durum.
Dave Reimann, a market analyst with Cargill, empathizes with Harlick and his fellow farmers.
“To me the (canola) market is setting up for a challenging year to two years,” he said.
Reimann said it is hard to imagine a scenario where Canada doesn’t top the previous record canola carryout of three million tonnes set in 2013. Agriculture Canada is forecasting 3.5 million tonnes.
He isn’t convinced growers will cut back on their canola planting because they have already bought their seed and inputs and the price versus other crops isn’t discouraging acres.
“That paints a fairly long-term bearish picture,” he said.
Errol Anderson, analyst with ProMarket Wire, believes carryout could exceed four million tonnes. He agrees with Reimann that growers may not cut back at all on 2019 plantings.
“The difficulty with acres is where do the acres go? I’m not convinced that the canola acres will be altered a whole heck of a lot by this,” he said.
Anderson doesn’t expect a resolution to the China situation anytime soon.
“They can wait the market out. It’s a different society,” he said.
Anderson believes China’s actions will lower cash bids across the Prairies by 50 cents a bushel. He expects canola will end the 2018-19 crop year in the $9 to $9.50 per bu. range.
Reimann said that is a reasonable guess. The only way prices will improve is if growers drastically cut their canola acres or exporters find new demand for the product.
If the weather delays seeding or dry conditions persist in some southern regions, growers could switch to shorter-season crops like barley, so it is possible acres will drop.
But he isn’t holding out much hope that new demand will emerge. If it does it will likely be in price sensitive markets like Pakistan and Bangladesh.
The more likely scenario is that prices remain depressed for the long-term, which means growers need to be as defensive as possible with their marketing strategies.
“Rallies are meant to be sold. It’s that simple,” he said.